At the federal level, the sale of non-deeded timeshares in Mexico (or “servicio de tiempo compartido”) are primarily governed under a set of administrative regulations titled “Norma Oficial Mexicana NOM-029-SCFI-1998” (“NOM”). These rules, first adopted in 1999, have been undergoing a legally mandated updating process since 2007.

While widely reported that an amended NOM is already in effect, effectuation has in fact been suspended until October 14, 2010. Moreover, some new and significant provisions were added to the draft initially circulated on May 17, 2010. As a consequence, the Ministry of the Economy has opened a second comment period that expires on September 27, 2010. Drafts of the Norma Oficial Mexicana NOM-029-SCFI-2010 (“Proposed NOM”) and its approved and proposed amendments can be reviewed at the following websites:

Original Proposal:

http://dof.gob.mx/nota_detalle.php?codigo=5142965&fecha=17/05/2010

May 17 Version:

http://dof.gob.mx/nota_detalle.php?codigo=5151924&fecha=15/07/2010

Current Review Version:

http://dof.gob.mx/nota_detalle.php?codigo=5153589&fecha=29/07/2010

Short Summary of Amendments

If it becomes effective in its current form, the Proposed NOM differs in some substantial ways from its predecessor:

  • Developers will be liable for the difference by which budgeted expenses are exceeded by expenses actually incurred.[1]
  • Sales contracts will need to include “opt-in” provisions whereby a purchaser must affirmatively agree that the developer and its affiliates are allowed to contact that purchaser in connection with subsequent marketing efforts.[2]
  • Sales contracts must be further augmented to include an explanation of how assessments will be calculated and paid. Developers are also expressly obligated to notify purchasers of any changes in those provisions.[3]
  • A purchaser’s rescission right can be exercised by mail, but not by e-mail as contemplated in the initial drafts of the Proposed NOM.[4]
  • Termination of a timeshare plan will no longer require the advance permission of administrative authorities.[5]
  • Gift, prize and certificate promotions will be subject to more stringent disclosure requirements.[6]
  • Direct references to the “garantía solidaria” have been eliminated.[7] However, developers must still provide the guaranty required pursuant to Article 65 of the Ley Federal de Proteccíon al Consumidor.[8]
  • The obligations of “prestadores intermediarios,” or those who sell timesharing services with respect to projects in which they do not own a real estate interest, will be aligned more closely with the obligations applicable to traditional developers.
  • The formalities and requirements applicable to those selling in Mexico timeshare services related to projects in other countries have been revised.[9]

Issues That May Deserve Comment

The scope of the changes presented by the Proposed NOM raises several issues that are worthy of consideration. Issues of particular concern may include the following:

  • The obligation to guarantee budgets. This requirement was added to the Proposed NOM after its initial publication on May 17. Timeshare regulations in other countries typically presume that budgets are financial projections made by reference to past experience and future expectations with respect to a particular resort property. While these laws may require management to make their estimations in good faith and to establish reserves for unexpected contingencies, management is generally not required to assume the financial risk related to unanticipated deficiencies. If enacted in its present form, the Proposed NOM would differ substantially from this model.
  • Marketing opt-in provisions. As originally contemplated in 2007, this rule would have allowed purchasers to opt-out of a developer’s marketing programs. While the debate on this provision seems to have focused on whether to use an opt-in or opt-out model, the practical effect of the purchaser’s choice may present a more pressing issue. The Proposed NOM does not distinguish between a developer’s right to contact purchasers to promote products and services related to the timeshare purchased and the developer’s right to convey the purchaser’s information to third parties marketing products and services unrelated to the timeshare development.
  • Rescission. Section 5.5.14 requires that, upon a purchaser’s rescission of a sales contract, the developer must refund the total purchase price within 15 business days. As such, the Proposed NOM does not allow the developer to recoup the disclosed reasonable value of incentives received and actually used by the purchaser following execution of the sales contract but prior to the exercise of his or her rescission right.
  • Implementation. A majority of the changes reflected in the Proposed NOM are to be effectuated through revised terms to sales contracts. As such, with respect to resorts currently in sales, the Proposed NOM would appear to create two classes of purchasers. The first group - those who executed sales contracts compliant with the Proposed NOM – would receive the benefits and assume the obligations dictated by the Proposed NOM. However, those who executed sales contracts prior to the adoption of the Proposed NOM would apparently have the different rights and obligations required pursuant to the NOM. From an administrative perspective, the rights and obligations of two separate classes would appear to be extremely difficult to track.
  • Foreign sales. Section 2 of the Proposed NOM has been revised to state that it applies to timeshare services sold in Mexico but provided with respect to properties located outside of Mexico (“foreign sales”). Nonetheless, concerns have been expressed that foreign sales are required to comply only with §10 of the Proposed NOM, and that the proposed relaxation of formalities and requirements in §10 will create an uneven competitive balance between foreign sales and sales in connection with Mexico-based projects.

Comment Submission

The comment process implemented by the committee charged with updating the NOM appears to be effective. For example, Baker Hostetler and Enriquez, Gonzalez, Aguirre y Ochoa, S.C. submitted joint comments in 2008 related to what we believed to be a practically unworkable timeshare plan termination process. Subsequent drafts of the Proposed NOM were revised to reflect our concerns.

If you are interested in submitting your own comments to the Proposed NOM, please note that the current comment period expires on September 27, 2010. Comments must be made in Spanish and can be submitted by either regular mail, fax or email as follows:

Comité Consultivo Nacional de Normalización de Seguridad al Usuario

Información Comercial y Prácticas de Comercio

Avenida Puente de Tecamachalco #6

Colonia Lomas de Tecamachalco

Sección Fuentes

Naucalpan de Juárez

53950, Estado de México

Facsimile: 55 20 97 15

Email: amedina@economia.gob.mx

pamartinezr@economia.gob.mx

francos@economia.gob.mx